Digital Transformation: How Companies Rethink, Retool and Reboot

The dynamics of the win-win that public-private partnerships can offer are clear: Faced with the need to embrace technological advances to stay competitive, companies need both access to capital and workers with the skills to help them leverage the capabilities of innovations in areas like data science, cloud computing and smart manufacturing.

Meanwhile, state and local governments looking to spur economic growth need to attract new businesses, as well as nurture existing ones. Recognition of that potential for mutual benefit is the driving force behind a growing number of public-private partnership initiatives.

In Indiana, that process starts with a dialogue with the CEOs of companies operating in the state or considering expanding there about what would move the needle, Ian Steff, executive vice president and chief innovation officer at the Indiana Economic Development Corporation (IEDC), told CEOs gathered for a recent Chief Executive Magazine roundtable co-sponsored by the IEDC.

“These are industry-driven partnerships centered on areas like energy storage, cybersecurity and the Internet of Things,” said Steff. “We ask industry: ‘What do you need in terms of matching resources or shared infrastructure to ensure that Indiana continues to lead in the sectors we’ve led for so many years in advanced manufacturing, life sciences and information technology?’”

Often, the answer is a skilled workforce. Farooq Kathwari, CEO of Ethan Allen, pointed out that while tax incentives get a lot of media attention, skilled labor and a friendly regulatory environment are the real deal-breakers for his company. “For us, the right labor is number one, and then the overall environment for working with the government needs to be good. After that it’s always good to get some benefits, but that will be third or fourth on the priority list.”

SEEKING SKILLS
Ensuring that the skills being taught at local colleges and universities are those the companies based there need is one way to address the workforce issue, noted Steff, who cited efforts in his state as an example. “Our former lieutenant governor, Sue Ellspermann, is now the president of Ivy Tech Community College, our largest college system,” he said. “She’s been transforming that place to ensure that we’re keeping up [by] changing curriculums to meet the skill set needs of companies.”

Companies, too, can spur academic change at the local level. Danbury, Connecticut-based Ethan Allen is among an increasing number of companies working directly with colleges and universities to develop the talent it needs. “We are next-door neighbors to Western Connecticut State University, and we have utilized that quite well in terms of internship programs and recruiting,” said Kathwari. “We’re deeply involved with the university.”

ProspEquity Partners has also been building relationships with schools around the country over the past decade to find and nurture talent. “We think the relationships we’ve developed with five or six engineering schools give us very solid insight into where the talent lies and the ability to develop successful internship programs,” reported Chris Ramonetti, CEO and managing partner, who added that academic partnerships can also bring insights on innovation. “We have an academic board of advisors from various universities who provide a touchpoint for what’s coming next in technological innovation.”

However, as important as educating locals in industry-specific skills is to many companies, it’s just one piece of the equation, the roundtable participants agreed, citing regional ecosystems that can offer talent, shareable resources and access to financing as ideal environments in which to locate. These were defined as “communities where collisions of resources and relationships build for greater innovation overall.”

Over time, those pockets of progress have the potential to develop into thriving, self-sustaining ecosystems, in the same way that Silicon Valley became a mecca for both talent and investment capital. Young, talented workers flock to clusters populated by promising companies able to offer them potential career stepping stones.

“In the 1990s there were so many firms [in Silicon Valley] that a person could progress in his or her career while staying within that area,” Ramonetti noted. “If you don’t have enough firms locally, it’s not only harder to bring someone to an area, it’s also harder to maintain a workforce and spread knowledge from one place to the next. No turnover is actually bad because you don’t have cross-utilization and growing through collision.”

As essential as an adequate pool of labor is, financial incentives, access to capital and other resources are also critical for many companies. Growing enterprises, especially early-stage ventures, often need financing to expand, noted Rick Nui, CEO of Star Strategic Partners. “Social financing is also key, especially for small and medium-size enterprises,” he added. “When you have less than $5 million in revenue, the struggle is cash flow, initially. [Locations that are] able to give them some help in that regard will benefit.”

Indiana is among a growing number of states looking for ways to support new ventures centered around high-growth sectors. The state recently unveiled a plan to invest $1 billion in innovation and entrepreneurship in Indiana over 10 years, an initiative that will focus in part on accelerating investment in early-stage, mid-market and high-growth companies. The state also offers a Venture Capital Tax Credit that aims to prompt investment by offering those who invest in qualified Indiana companies a state tax credit of up to 20% of that investment.

“We are now proposing making that transferable so that those who can’t claim the credit because they don’t have a tax liability in Indiana can sell that credit to someone who does,” explained Steff.

INCITING INCENTIVES
Indiana made headlines in December when then–President-elect Donald Trump stepped in to forge a deal to help prevent 1,000 jobs at air conditioning company Carrier’s Indianapolis facility from going to Mexico. While the incentives offered by the state in return, which involved significant tax credits, spurred some controversy, “at the end of the day, the package put together was very fair and very much performance-based,” noted Steff, whose state will conduct an audit to ensure Carrier keeps its end of the deal.

“All of our incentives are performance-based—you actually have to deliver to claim the incentives,” he added, noting that incentives doled out without careful consideration can backfire. “Sometimes you see 10-year tax holidays for new companies—what message does that send to the companies that have been part of that ecosystem for many years?”

Kathwari agreed, noting that the states in which Ethan Allen has manufacturing facilities tend to take the company’s presence there for granted. “We are manufacturing in North Carolina, Vermont, New Jersey, Connecticut, many places, and we see those states spend a lot of effort on attracting new folks,” he noted. “There’s no interest in those of us already there until we decide to leave or threaten to leave, which is not how it should be.”

Acknowledgment of Kathwari’s point is reflected by a shift in how states like Indiana are approaching economic development and incentives, noted Steff. “Increasingly, we are looking to leverage state resources in ways that benefit not just one company, but many companies,” he said. “Public-private partnerships are a tool in our quiver as we look to accomplish that.”